Financial services and the UK regulation agenda: more than a response to Covid-19

On 7 April 2020, the Financial Conduct Authority (FCA) published its business plan for 2020/2021. Understandably, the FCA's main immediate focus is to continue to address the challenges presented by the coronavirus emergency. However, that is not the whole story and the FCA is not planning to relax its business-as-usual efforts, although, unsurprisingly, they are more of a medium-term objective.

In particular, the FCA has stated publicly that its focus will be on markets where it sees the most potential for harm. As has been foreshadowed in its supervisory and enforcement work over the past 12 months or so, the FCA is shifting its focus towards smaller firms to ensure that they meet the required standards. The FCA has also made clear that it will tackle harm caused to markets and consumers by regulated firms aiming to take advantage of the Covid-19 crisis, as well as against those firms and individuals who seek to carry on regulated activities without authorisation.

Regulatory focus

Other areas of focus for this year (and the following two years) are:

• enabling effective consumer investment decisions, with a focus on scams, pension transfers and high-risk products;
• ensuring consumer credit markets work well, with credit being affordable whilst maintaining access to credit;
• making payments services safe and accessible, including protecting data, minimising fraud and operational outages, properly safeguarding funds and maintaining access to cash; and
• delivering fair value in a digital age, in particular the reduction of loyalty discrimination and vulnerable exploitation.

Throughout the report, the FCA is clear that it is all about customer outcomes and the prevention of harm to customers. Firms should pay careful attention to the FCA's outcomes articulated in the business plan as these may well become the standards against which firms, and their actions, are measured. For example, in the context of consumer credit, the FCA's intended outcomes are that consumers can find products that meet their needs, consumers do not become over-indebted by being given credit they cannot afford, affordable credit is available to smooth consumption and consumers can take control of their debt at an early stage when they fall into financial difficulty. In the payments services sector, the FCA's intended outcomes are that consumers can transact safely with payment firms, payment firms meet their regulatory responsibilities – while competing on quality and value – and consumers and SMEs have access to a variety of payments services.

Beyond the Covid-19 outbreak, the FCA continues to prioritise climate change, technology, operational resilience, financial crime and culture. As the consequences of Covid-19 become clearer, these areas will have continued importance for financial services firms and their customers.

On the horizon

Other matters to look out for in the coming year are:

• the publication of the outcome of the independent reviews into the FCA's oversight of London Capital and Finance, Connaught Income Series 1 Fund and interest rate hedging products;
• preparations for the end of the Brexit transition period, including temporary permissions for European Economic Area-based firms and funds passporting into the UK;
• follow up to the consultation on climate-related disclosure rules for some issuers and ongoing policy research on the design and accuracy of disclosure of "green products";
• the prevention of money laundering and other financial crime generally, but particularly in the context of crypto assets;
• the transition from Gabriel to more streamlined digital regulatory reporting; and
• preparations for the transition from LIBOR.

Comment

Unlike in other years, the FCA's business plan is light on the detail (it is less than half the length of last year's), with a focus on "themes" rather than specific sectors or specific activities. This is perhaps unsurprising given the current Covid-19 crisis and the fast-moving nature of both the FCA's and the industry's response, and because the FCA has only recently issued its Sector Views.

Back in October 2019 when Christopher Woolard, the then director of strategy and competition at the FCA, delivered his speech 'Regulation in a changing world', the change he was referring to was Brexit, changes in consumer needs and attitude, and innovation. While the world has undergone further unprecedented change since then, many of the fundamental themes of that speech still hold true. In particular, the business plan reinforces the FCA's aim to become a more outcomes-focused regulator, thereby accountable for its actions and fit for the age we are in.

In previous years, the business plan focused only on key priorities for regulating the firms it is responsible for; this year, the FCA's stated "fifth priority" (although it puts it front and centre of its plan) is its own transformation into an organisation that makes faster and more effective decisions – as "One FCA" – in a more integrated way. It also takes into account the significant informational and reporting demands from firms from a variety of regulators. Whether this "priority" is as a result of criticisms made that the standards applied to firms are higher than the standards applied to its own operation, or whether it is a nod to the change in leadership at the FCA, is unclear.

What is clear from the tone and content of the business plan is that, like all businesses, the FCA is struggling to make firm plans as to how this year should look for it, noting that its existing plans may well change (or at least be delayed) in the current Covid-19 situation. The FCA's tone seems to indicate an understanding of the challenges faced within the industry and a desire to appreciate, rather than add additional burdens to, the response that is required.

Whether that understanding translates into an equivalent understanding of or tolerance towards imperfections that may exist or issues that may arise (absent deliberate or systemic issues) remains to be seen. It also remains to be seen how that understanding might sit with the FCA's shift in focus towards smaller firms, which will likely be disproportionately affected by the crisis.